A flat tax adds one more wrinkle: businesses are allowed a deduction for wages paid, but the employees pay the “flat tax” on their wages directly. It is basically a sales tax where the tax is collected in stages from each producer on the supply chain rather than all at once from retailers (as in the retail sales taxes that are common in the US). Under one variant of VAT, called a “subtraction-method VAT,” businesses deduct the cost of inputs from gross receipts and pay tax on the difference-the value added. What is the flat tax? The flat tax is a VAT, not so different from the taxes popular around the world. So I can’t comment on the specific proposal, but I can try to dispel some misconceptions about the flat tax. There are, as far as I know, no details about the rate or exemption level of the tax or whether it will allow deductions for things like charitable contributions or mortgage interest.
Rick Perry is reportedly going to announce his tax reform plan, a so-called flat tax.
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